Stablecoin USDC Lost its Value Due to the Collapsed Silicon Valley Bank
USDC issuer Circle have said that 3.3 billion USD of cash reserves earmarked to support USDC are held with the collapsed Silicon Valley Bank.
The US Dollar Coin (USDC), which is the second largest stablecoin after USDT by market capitalization, was created to maintain a price of 1 USD.
But following Circle's announcement on Friday, the price of USDC plunged to 87 cents overnight, surpassing the 2019 all-time low of 89 cents for the stablecoin. However, on Saturday morning, the price began to rise and USDC is currently trading at 95 cents, according to CoinMarketCap and CoinGecko.
Circle, the issuer of USDC, disclosed in a statement on Friday that cash reserves of roughly 3.3 billion USD to support USDC are being held at Silicon Valley Bank (SVB), which was shut down by California financial regulators this week. SVB had a classic bank run, similar to those that took place in 2008 during the financial crisis. The bank suffered large losses that forced it to sell long-dated assets to meet redemption demand.
Prior to the announcement, action was taken by the Binance and Coinbase exchanges, which announced a temporary suspension of USDC conversion. This means that customers who have USDC on these exchanges cannot currently access it, and must either wait for further comment from Circle, or until USDC re-pegs.
The depegging of USDC has resulted in other major USD-pegged stablecoins experiencing similar declines. Marker's $DAI is currently selling for 95 cents, Tron's $USDD for 96 cents, and Paxos' $USDP for 99 cents at the time of writing.
The main purpose of dollar stablecoins is to keep the price "stable" in the sense of holding the price of 1 USD constant. $USDC was launched by Centre, a joint venture between Circle and Coinbase. Circle's website states that $USDC is "always exchangeable 1:1 for USD." However, the current situation shows that this is not the case.
However, Circle is not the only company affected by the SVB collapse. On Friday, multiple companies and projects revealed their connections to the bank, including Yuga Labs, Avalanche, Proof, BlockFi and, of course, Circle. Of all these companies, however, Circle stands out the most, as it is responsible for maintaining confidence in a product that it claims is always and fully backed by cash reserves, and which can always be exchanged for 1 USD.
$USDC’s price is slowly recovering, but the question remains as to whether stablecoins are really as stable as their creators claim them to be, when the collapse of one bank can cause such a "massive" drop in the price of the world's second largest stablecoin.
Source: decrypt.co
analyst opinion
Ladislav Horáček
The US Dollar Coin (USDC), which is the second largest stablecoin after USDT by market capitalization, was created to maintain a price of 1 USD.
But following Circle's announcement on Friday, the price of USDC plunged to 87 cents overnight, surpassing the 2019 all-time low of 89 cents for the stablecoin. However, on Saturday morning, the price began to rise and USDC is currently trading at 95 cents, according to CoinMarketCap and CoinGecko.
Circle, the issuer of USDC, disclosed in a statement on Friday that cash reserves of roughly 3.3 billion USD to support USDC are being held at Silicon Valley Bank (SVB), which was shut down by California financial regulators this week. SVB had a classic bank run, similar to those that took place in 2008 during the financial crisis. The bank suffered large losses that forced it to sell long-dated assets to meet redemption demand.
Prior to the announcement, action was taken by the Binance and Coinbase exchanges, which announced a temporary suspension of USDC conversion. This means that customers who have USDC on these exchanges cannot currently access it, and must either wait for further comment from Circle, or until USDC re-pegs.
The depegging of USDC has resulted in other major USD-pegged stablecoins experiencing similar declines. Marker's $DAI is currently selling for 95 cents, Tron's $USDD for 96 cents, and Paxos' $USDP for 99 cents at the time of writing.
The main purpose of dollar stablecoins is to keep the price "stable" in the sense of holding the price of 1 USD constant. $USDC was launched by Centre, a joint venture between Circle and Coinbase. Circle's website states that $USDC is "always exchangeable 1:1 for USD." However, the current situation shows that this is not the case.
However, Circle is not the only company affected by the SVB collapse. On Friday, multiple companies and projects revealed their connections to the bank, including Yuga Labs, Avalanche, Proof, BlockFi and, of course, Circle. Of all these companies, however, Circle stands out the most, as it is responsible for maintaining confidence in a product that it claims is always and fully backed by cash reserves, and which can always be exchanged for 1 USD.
$USDC’s price is slowly recovering, but the question remains as to whether stablecoins are really as stable as their creators claim them to be, when the collapse of one bank can cause such a "massive" drop in the price of the world's second largest stablecoin.
Source: decrypt.co
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